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Some Tactical Plays In A 'Trendless' FX Market

With that in mind, it would not be surprising if today saw slightly trendless FX markets. As long as USD/JPY holds above 111.50, it looks fine.

As long as WTI crude prices are just meandering around with a centre of gravity at USD 53/bbl, it’s only a matter of time before USD/CAD breaks 1.30 and short EUR/CAD looks like an attractive 2-month trade.

ECB meetings will be a lot more exciting after the French elections when better data and higher inflation put more urgency into calls for more tapering, and really place the focus on what the implications of that would be for the Euro and for peripheral bond markets. We would like to be long EUR/JPY before this debate really hears up, but would also like to get the trade on at 115 or lower...

EUR/USD: U-Shaped: Themes, Targets, & Tech Setup - BofA Merrill

Themes: Trump-driven in H1, Draghi-driven in H2

It is all about the USD for now. We expect US fiscal stimulus, which together with political risks in Europe should help weaken the EUR in H1. Although we remain positive on France, investors will hedge the French elections following Brexit and Trump surprise wins. We expect ECB constraints to become a more important driver and strengthen the EUR in H2. The market took the reduction of the ECB QE monthly purchases last December well, but this was the beginning of the end for QE, in our view.

The EUR is undervalued by only 2% in trade weighted terms, but by 9.6% vs. the USD. The EUR is cheap against NZD, CHF and JPY and expensive against NOK and SEK, based on our equilibrium estimates. The Eurozone data is good and getting better. The market EUR position is broadly neutral.

Forecasts: U-shaped.

We expect EUR/USD to weaken to 1.02 by mid-2017. Risks to this projection appear balanced. Expecting the ECB to taper QE towards the end of the year, we see the EUR strengthening in H2, going back to 1.05 by end 2017 and to 1.10 in 2018, with upside risks.

Tech Setup:

Spot breakdowns, technical patterns and momentum lean bearish.

The new lows starting 1Q17 and February’s trend line breakdown formed a bearish flag.

GBP: Most Of The Negative News In The Price; Where To Target?

ABN AMRO Research argues that GBP's behavior signals that most of the negative news and Brexit uncertainty is reflected in the price.

"This is also reflected in its under-valuation versus long-run fundamental metrics at current levels, especially versus the US dollar. For instance, the Purchasing Power Parity level for GBP/USD is 1.44," ABN AMRO adds.

On the BoE's front, ABN AMRO's base case is that the central bank will look through the recent rise in inflation and keep interest rates on hold as exchange-rate driven inflation tends to be relatively transient.

"However, recent MPC communication suggests that some members are getting nervous about inflation. So the risks of a rate hike have increased over recent weeks," ABN AMRO adds.

Goldman Sachs preview of the Nonfarm payroll report

Here is Goldman Sachs on what they are looking at (in brief):

Headline estimate nonfarm payrolls +170K

Unemployment 4.7%

Average hourly earnings +0.2% m/m and +2.7% y/

GS say their forecast

Reflects above-trend underlying job growth that is more than offset by a significant drag from unseasonable winter weather, which we believe may have boosted February payroll growth by 30-50K and could weigh on March growth by as much as 30-60K

We are not assuming a significant impact from the federal hiring freeze implemented in late January, which did not appear to materially affect the February report

Unemployment stable ... upside risk from a potential pause in household employment growth is offset by some scope for a pullback in the participation rate, following its sharp year-to-date increase

Based on its latest analysis for flows and positioning data, Bank of America Merrill Lynch FX Strategy Research notes that USD selling and EUR buying from the investor community has been intact but offset to a large extent by corporate and official sector flow so far this year.

Into the end of March, BofAML data showed that the positive EUR trend was supported by both of hedge funds and real money buying.

Societe Generale FX Strategy Research notes that NZD, AUD, and CAD are in the process of tracing out gradual turns against the US dollar.

"Anticipation of a higher milk price forecast from Fonterra this Thursday, and hope of tax cuts on Thursday when a bigger budget surplus is expected to be announced in New Zealand, are boosting NZD which is dragging AUD along behind it; CAD is following at a respectable distance behind," SocGen notes.

"CAD is more sensitive to oil than the others, and the recent bounce reflects optimism about the upcoming OPEC announcement," SocGen adds.

Strategy-wise, SocGen thinks that AUD/JPY and NZD/JPY are both attractive longs here, but for a very short-term trade, NZD/JPY is the one with most to gain from Thursday’s Budget.
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Despite Mario Draghi dampening hopes that the European Central Bank will begin to limit its current quantitative easing program in the short term future, the Euro is holding onto its recent gains.

The Euro is the best-performing G10 currency this year, and since the beginning of the year the Euro is up by 7% against the US Dollar and almost 2% against the Pound.

The Pound to Euro rate is currently sitting in the mid 1.15’s at the mid-market level, which is a 4 cent drop from just a few weeks ago when the currency was trading in the mid 1.19’s.

Deutsche Bank have recently joined a growing list of analysts that consider the GBP/EUR pair a sell, with Lloyd’s also expecting to see the pair soften by the end of the year. Next months election could create headwinds in the meantime and within the next hour UK GDP data will be released which could also result in the weakening of Sterling, especially if the figure released disappoints.
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GAIN Capital was the notable exception as the biggest FX brokerage in the U.S. yielded a decline month-over-month.

The Commodity Futures Trading Commission (CFTC) has released its monthly composite of key figures and data for Futures Commission Merchants (FCMs), this time for the month ending in May 31, 2017. According to the CFTC dataset, three of the four FX firms listed notched increases in Retail Forex Obligations.

The statistics didn’t show notable changes in terms of retail FX funds held at registered brokerages operating in the United States, which has slightly increased by 2.0% month-over-month in May 2017, coming in at $533.9 million, compared with $524.8 million reported back in the month of April.

Out of the four reporting FCMs that hold Retail Forex Obligations, three of them; Interactive Brokers, OANDA Corporation and TD AMERITRADE reported higher figures in May. The largest single increase was made by Interactive Brokers, which saw a substantial growth of $6.3 million, or more than 19.0 percent month-over-month.